Steelmakers post 4.3b yuan in losses

As of Tuesday, 16 out of the 56 listed steel companies had released their results for 2012, showing aggregated losses of 4.3 billion yuan ($682 million), despite a recovery in fourth-quarter demand.

Angang Steel Co Ltd, the listed arm of Anshan Iron and Steel Group Corp, led loss-making companies by booking a 4.16 billion yuan loss for 2012. The company now carries the ST tag on its shares traded on the Shenzhen Stock Exchange after posting losses for two years in a row.

Shandong Iron and Steel Co Ltd reported a net loss of 3.8 billion yuan for 2012, while the Anhui-based Magang (Group) Holding Co Ltd saw a 3.86 billion yuan loss due to slumping downstream demand and soaring operating costs.

Analysts have a bearish outlook for domestic steelmakers in 2013, as overcapacity and weak downstream demand are not expected to ease off in the short term.

"Real estate, infrastructure construction, machinery and shipbuilding are the major downstream industries for steel firms, and all of them ran into difficulties in 2012," said Yang Hua, an analyst at Mysteel.com, a steel industry information provider.

"The lackluster downstream demand also fixed steel prices at low levels, but making the situation worse is the steady increase of raw material prices," said Qiu Yuecheng, an analyst from an e-commerce platform 96369.net.

The country's 80 major steel companies posted 1.58 billion yuan in profits in 2012, tumbling 98.2 percent year-on-year, according to data from the Ministry of Industry and Information Technology.

The sales margin of steel companies was merely 0.04 percent in 2012. That figure used to stay above 2 percent, and it was 8 percent in 2004.

Overcapacity, which is regarded as the major reason behind the losses, is spreading from low-end to high-end products after many small mills started producing high-end goods in a bid to get higher profits, said Yang.

The inventories of the 80 major steel companies have reached a peak of 14.5 million tons, according to data from the China Iron and Steel Association.

"Chinese steel mills are able to produce 950 million tons of steel products annually, but their output last year was 717 million tons, which means a lot of capacity is staying idle. And once the prices of the products start to pick up, steel mills will compete fiercely. As a result, steel prices have smaller room to rise," said Wang Guoqing, a senior analyst at Beijing Lange Steel Information Research Center.

Zeng Jiesheng, another analyst at Mysteel.com, said it will take several years for the industry to recover from the current plight of low demand, disorder in competition and overcapacity.

During a slow market, it's extremely important for a company to have unique products, Zeng said, adding that Baoshan Iron and Steel Co Ltd's strength in car plates, for instance, allowed it to reach a substantial profit margin.

The Shanghai-based Baosteel, as the company is known, has maintained solid profitability, with its net income surging 41.1 percent year-on-year to 10.39 billion yuan.

Meanwhile, the industrial environment is improving from its nadir in 2012, and the government's urbanization and efforts to develop advanced manufacturing strategies will ensure steady demand for the steel industry.

Construction projects for the property and infrastructure sectors account for about 50 percent of the nation's total steel demand, and the rising investment from downstream industries will translate into improved demand in 2012, analysts said.